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Exploding Offers and Buy-Now Discounts

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  • Mark Armstrong
  • Jidong Zhou

Abstract

A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly, before she can investigate rival deals in the market.� We consider a market with sequential consumer search in which firms can achieve this either by making an exploding offer (which permits no return once the consumer leaves) or by offering a buy-now discount (which makes the price paid for immediate purchase lower than the regular price).� We show that firms often have an incentive to use these sales techniques, regardless of their ability to commit to their selling policy.� We examine the impact of these sales techniques on market performance.� Inducing consumers to buy quickly not only reduces the quality of the match between consumers and products, but may also raise market prices.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 575.

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Date of creation: 01 Oct 2011
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Handle: RePEc:oxf:wpaper:575

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Related research

Keywords: Consumer search; Oligopoly; Price discrimination; High-pressure selling; Exploding offers; Buy-now discounts; Costly recall;

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References

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  2. Simon P. Anderson & Regis Renault, 1999. "Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model," Virginia Economics Online Papers 335, University of Virginia, Department of Economics.
  3. Mark Armstrong & Jidong Zhou, 2011. "Exploding Offers and Buy-Now Discounts," Economics Series Working Papers 575, University of Oxford, Department of Economics.
  4. Stanley Reynolds & John Wooders, 2009. "Auctions with a buy price," Economic Theory, Springer, Springer, vol. 38(1), pages 9-39, January.
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  9. John Vickers & Mark Armstrong, 2006. "Competitive Nonlinear Pricing and Bundling," Economics Series Working Papers 281, University of Oxford, Department of Economics.
  10. Armstrong, Mark & Zhou, Jidong, 2010. "Conditioning prices on search behaviour," MPRA Paper 19985, University Library of Munich, Germany.
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Cited by:
  1. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Negotiation in Differentiated Products Markets: Evidence from the Canadian Mortgage Market," Working Papers, Bank of Canada 12-30, Bank of Canada.
  2. Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer, Springer, vol. 55(2), pages 481-514, February.
  3. Philippe Choné & Romain De Nijs & Lionel Wilner, 2012. "Intertemporal Pricing with Unobserved Consumer Arrival Times," Working Papers, Centre de Recherche en Economie et Statistique 2012-23, Centre de Recherche en Economie et Statistique.
  4. Mark Armstrong & Jidong Zhou, 2011. "Exploding Offers and Buy-Now Discounts," Economics Series Working Papers 575, University of Oxford, Department of Economics.
  5. Zhou, Jidong, 2011. "Multiproduct search," MPRA Paper 37139, University Library of Munich, Germany.

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